Chapter 2

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Chapter 2

Global Strategic Planning


Learning Objectives:

After studying this chapter, you should be able to do the following:

1. Discuss the nature of doing business globally, including language.

2. Explain the advantages and disadvantages of doing business globally.

3. Discuss the global challenge facing firms and why this is a strategic issue

The Nature of Doing Business Globally Exports

Globalization is a process of doing business worldwide, so strategic decisions are made based on global
profitability of the firm rather than just domestic considerations. A global strategy seeks to meet the
needs of customers worldwide, with the highest value at the lowest cost.

A global strategy includes designing, producing, and marketing products with global needs in mind,
instead of considering individual countries alone. A global strategy integrates actions against
competitors into a worldwide plan. Today, there are global buyers and sellers and the instant
transmission of money and information across continents.

Organizations that conduct business operations across national borders are called international firms or
multinational corporations. The strategic-management process is conceptually the same for
multinational firms as for purely domestic firms; however, the process is more complex for international
firms as a result of more variables and relationships.

The social, cultural, demographic, environmental, political, governmental, legal, technological, and
competitive opportunities and threats that face a multinational corporation are almost limitless, and the
number and complexity of these factors increase dramatically with the number of products produced
and the number of geographic areas served.

Different Languages Globally

Strategic issue facing many firms is whether to publish their website material in different languages,
given that most of the world’s population does not speak English. Pioneering work to document the
number of different languages spoken has been done by the Summer Institute of Linguistics (SIL)
International.

Advantages and Disadvantages of Doing Business Globally

Firms have numerous reasons for formulating and implementing strategies that initiate, continue, or
expand involvement in business operations across national borders. Perhaps the greatest advantage is
that firms can gain new customers for their products and services, thus increasing revenues. Growth in
revenues and profits is a common organizational objective and often an expectation of shareholders
because it is a measure of organizational success.

Potential advantages to initiating, continuing, or expanding international operations are as follows:

1. Firms can gain new customers for their products.


2. Foreign operations can reduce unit costs, and spread economic risks over a wider number of markets.

3. Foreign operations can allow firms to establish low-cost production facilities in locations close to raw
materials or cheap labor.

4. Competitors in foreign markets may not exist, or competition may be less intense than in domestic
markets.

5. Joint ventures can enable firms to learn the technology, culture, and business practices of other
people and to make contacts with potential customers, suppliers, creditors, and distributors in foreign
countries.

The availability, depth, and reliability of economic and marketing information in different countries vary
extensively, as do industrial structures, business practices, and the number and nature of regional
organizations.

There are also numerous potential disadvantages of initiating, continuing, or expanding business across
national borders, such as the following:

1. Foreign operations could be held by nationalistic factions.

2. Firms confront different and often little-understood social, cultural, demographic, environmental,
political, governmental, legal, technological, economic, and competitive forces when doing business
internationally. These forces can make communication difficult in the firm.

3. Weaknesses of competitors in foreign lands are often overestimated, and strengths are often
underestimated. Keeping informed about the number and nature of competitors is more difficult when
doing business internationally.

4. Language, culture, and value systems differ among countries, which can create barriers to
communication and problems managing people.

5. Dealing with two or more monetary systems can complicate international business operations.

The Global Challenge

Few companies can afford to ignore the presence of international competition. More and more countries
around the world are welcoming foreign investment and capital. As a result, labor markets have steadily
become more international. East Asian countries are market leaders in labor-intensive industries, Brazil
offers abundant natural resources and rapidly developing markets, and Germany offers skilled labor and
technology.

The drive to improve the efficiency of global business operations is leading to greater functional
specialization. Many countries are quite protectionist, and this position can impact companies’ strategic
plans. Protectionism refers to countries imposing tariffs, taxes, and regulations on firms outside the
country to favor their own companies and people. Most economists argue that protectionism harms the
world economy because it inhibits trade among countries and invites retaliation.

Communication may be the most important word in strategic management. Americans increasingly
interact with managers in other countries, so it is important to understand communication differences
across countries. Americans sometimes come across as intrusive, manipulative, and garrulous; this
impression may reduce their effectiveness in communication.

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